Taxpayers allied with the Tea Party movement urged New York's top court on Wednesday to help them end what they call corporate welfare and require companies to return what could be billions of dollars to state taxpayers.
In their lawsuit at the Court of Appeals, 50 taxpayers said New York's constitution prohibits giving state funds to private organizations and makes no exception for economic incentives. They want the practice stopped and companies that received grants since the suit was filed in August 2008 to repay them.
"Our primary concern is going forward," said attorney James Ostrowski, when Judge Victoria Graffeo questioned the likely impact from overturning the longtime state practice. He said the money recouped would probably depend on a review by the attorney general's office.
The taxpayer group cited a provision in New York's constitution that says: "the money of the state shall not be given or loaned to or in aid of any private corporation or association, or private undertaking; nor shall the credit of the state be given or loaned to or in aid of any individual, or public or private corporation or association, or private undertaking." It has an exception for funds or property used for education and mental health.
Defendants countered that the funding for public purposes through state-designated economic development agencies is supported by law and precedents and doesn't violate the constitution.
"Doesn't that just invite evasion?" Judge Robert Smith said. "All you've got to do is put an intermediary between the state and the recipient?"
Solicitor General Barbara Underwood replied she didn't believe it was an evasion. "I believe it is an arrangement that the constitution and the decisions of this court have authorized," she said.
The taxpayers sued the state, its Urban Development Corp., Erie Canal Harbor Development Corp. and six companies, including IBM and computer chip maker Global Foundries. A trial judge dismissed the suit, but a midlevel court reinstated it.
The taxpayers want the case sent back to the trial court, where they would immediately request a summary judgment based on the law, Ostrowski said. If they lose at the Court of Appeals, the case is over. Their suit also challenges state grants to associations promoting New York farm products. A ruling is expected in November.
Global Foundries attorney Harold Iselin said the company is investing more than $7 billion in private capital to guarantee the state more than 1,000 jobs at a new semiconductor factory in upstate New York. The state Legislature has approved $650 million for costs associated with research and development, funded by bonds issued by the Empire State Development Corp. He argued that those bonds are not state funds.
"Even if the grant to Global Foundries was funded by the state, the grant was not a 'gift' in any sense of the word," Iselin wrote in an earlier brief. "The ESDC is authorized by state law to provide financial and technical assistance to promote job opportunities, urban renewal and economic development."
A handful of lawsuit backers rallied outside the state Capitol before Wednesday's oral arguments in the nearby courthouse, urging people to vote out lawmakers who back corporate subsidies and for legislators to sign pledges that they won't provide them anymore.
Lee Bordeleau, an investment broker from Niagara Falls and the lead plaintiff, said the state has been handing out corporate subsidies for 40 years at taxpayer expense, choosing winners and losers in what should be a free marketplace. He and Ostrowski said one court filing indicated the state was paying almost $5 billion annually in such subsidies, many to companies that are contributors to the politicians making the decisions.
"We're asking all the Tea Party groups in the country to endorse our war against corporate welfare," Ostrowski said. He noted that the Tea Party movement nationally is "very decentralized," and this Tea Party coalition has been rallying in western New York against corporate subsidies since 2004.